Friday, 17 April 2015

The Office for
National Statistics (ONS) has this morning released the latest set of UK labour
market data, mostly covering the three months December 2014 to January 2014.

The remarkably
strong quarterly 248,000 rise in employment indicates a surge in the pace of
job creation at the end of last year, helping to cut unemployment by a further 76,000
to a rate of 5.6%. People working full-time account for two-thirds of the total
rise in employment this quarter, most of whom are employees on permanent
contracts. With the number of people in work now above 31 million the working age
employment rate has risen to 73.4%, a new record.

The fact that very
strong employment growth had only a relatively modest impact on unemployment in
the quarter is explained by a large fall of 104,000 in the number of economically
inactive people, itself likely to be an indication of improved labour market
opportunity.

A further fall in
unemployment combined with both a record employment rate and record job vacancies
(up 32,000 in the quarter to 743,000) has also given a boost to the rate of
growth of regular pay (i.e. average weekly earnings excluding bonuses) which
has increased from 1.6% to 1.8%. Regular pay growth is a better indicator of
underlying wage pressure than total pay (including bonuses), the rate of which
fell from 1.9% to 1.7%.

Together with zero
price inflation, the jobs boom is helping improve real incomes despite the fact
that nominal wage pressure remains subdued. However, the rise in employment and
real wages continues to mask severe underlying weakness in labour productivity.
This will have to improve markedly if the current recovery in living standards
is to be sustained into the medium and long-term.

Tuesday, 14 April 2015

During the course of the UK
General Election campaign the Conservatives and Liberal Democrats have pointed
to the number of jobs created since 2010, while Labour and many of the minority
political parties instead emphasise the squeeze on real earnings. As a result,
I’m often asked why a record employment rate has yet to trigger an obvious
economic feel good factor. There are several ways of looking at this but
something that is often overlooked is the average amount of work people are
doing, which has only just returned to what was considered normal prior to the
recession.

At the start of 2008, just
before the recession struck, UK workers were on average working 32.2 hours per
week. This was around the average for most of the 2000s and around an hour less
than the average for the 1990s, the fall over the decade due to a shift toward
jobs offering shorter hours. At the time of the last General Election in 2010
this figure had, in the wake of the recession, fallen to 31.6 hours – a loss
equivalent to almost a week’s work over the course of a year, which is clearly
enough to make the average worker feel worse off.

Since then average hours
have risen again but (by the end of 2014) were only back to where they were
just before the recession i.e. 32.2 hours per week. This is despite lots more
jobs being created and a record employment rate, reflecting the fact that there
has been a further shift toward jobs offering shorter hours. However, for most
of the period during which average hours were returning to normal the amount
people were on average earning for each hour they worked was also falling in
real terms. The lack of a noticeable feel good factor is therefore
understandable.

For the average worker to
feel as well off as before the recession we will thus have to see either an
increase in the length of the average working week (say taking it back to where
it was in the 1990s) or higher productivity per hour worked in order to boost
hourly earnings. Assuming that most people would prefer to work smarter rather
than harder (i.e. enjoy an improvement in their overall economic and social well-being)
this suggests that measures designed to raise productivity and pay per hour should
be at the centre of the General Election debate. Sadly, despite lots of rhetoric
about the situation of ‘hard working families’, such measures are a best only
implicit in much of what we have heard from our politicians in the election campaign
so far.